Virus killing 5 million pigs spurs hog-price rally

By Elizabeth Campbell and Liyan Chen, Bloomberg News

Posted:
02/08/2014 12:53:47 PM PST

Updated:
02/08/2014 12:53:51 PM PST

CHICAGO — Almost every piglet born on Craig Rowles' hog farms near Carroll, Iowa, died from the virus that swept through his herds in November, causing $462,000 of lost revenue in the first month of the outbreak. By the end of February, he expects to lose 15,000 animals, or 10 percent of annual sales.

“This virus is one of the most infectious diseases I've ever seen,” said Rowles, 56, who started raising livestock as a teenager and earned a degree in veterinary medicine at Iowa State University in Ames.

Porcine epidemic diarrhea virus, called PED, has spread to 23 states since April, with a surge in reported cases last month, including in Iowa, the top producer. Researcher Global AgriTrends said the sickness may kill as many as 5 million pigs, or about 4.5 percent of the animals sent to processing plants last year in the United States, the world's biggest pork exporter.

Farmers that were expected to increase hog output because of lower feed costs instead will see the virus “constrain supply for most of 2014,” sending Chicago hog futures surging as much as 16 percent this year to $1.10 a pound, the highest since April 2011, said Will Sawyer, a vice president at Rabobank International in New York. The rally may extend gains in meat costs for buyers including Hormel Foods and Hillshire Brands even as overall food expenses have dropped.

While PED poses no threat to humans or food supplies, it can be 100 percent fatal for newborn pigs under three weeks old and prevents older hogs from gaining weight, delaying their arrival at slaughtering plants. Infected animals get acute diarrhea and vomiting, and the virus can be transmitted from the waste to other pigs, according to the American Association of Swine Veterinarians.

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There is no vaccine for the virus, which was common in Europe and Asia but wasn't seen in U.S. herds until last year, according to the U.S. Department of Agriculture. Farmers are forced to allow the sickness to run its course and to clean out pens to prevent further spread.

Hogs available to processors this year probably will drop about 3 percent, with heavier animals offsetting some of the decline, according to Tyson Foods Inc., the second-largest U.S. pork producer. That's a change from November, when the Springdale, Ark.-based company said supplies would climb as much as 2 percent in the 12 months through September 2014.

Wholesale-pork prices will increase in 2014, with the impact most visible in the summer, James Lochner, Tyson's chief operating officer, said on a Jan. 31 conference call with analysts. Tyson doesn't “anticipate any issues” at its processing plants, he said.

Smithfield Foods, a unit of China's Shuanghui International Holdings and the largest U.S. processor, said in December that PED may affect 500,000 to 1 million sows across the industry. That would mean a production loss to the industry of 2 million to 3 million pigs, Robert Manly, the chief synergy officer, said during a Dec. 23 earnings call.

Consumers will pay as much as 3 percent more for the meat this year, up from a 0.9 percent gain in 2013, the USDA has projected. Wholesale-pork prices surged 5.8 percent last month, the first increase since September, and prices are 8.6 percent higher than a year earlier, government data show. Retail pork chops are already at record levels, and prices averaged $3.731 a pound in December, the highest since at least 1998, according to the latest data from the Bureau of Labor Statistics.

Hillshire, the Chicago-based owner of Jimmy Dean sausage and Ball Park hot dogs, is “heavily affected” by the impact of the virus on pork pricing, Maria Henry, the chief financial officer, said on an Oct. 31 conference call. The increasing number of reported cases wreaks “a bit of havoc” on the market, Henry said. On Jan. 30 conference call, she said input costs rose “significantly” more than expected in October.

Hormel, the Austin, Minn.-based maker of Spam meat products, is closely monitoring hog prices because tightening supply may result in “volatile hog cost,” Jeffrey Ettinger, the chief executive officer, said on a Nov. 26 conference call.

Reduced supplies of piglets because of PED may be offset by heavier hogs. Cheap feed grains allow farmers to keep animals longer to fatten them before slaughter.

The price of corn, the main ingredient in livestock feed, has plunged 48 percent from an all-time high of $8.49 a bushel in August 2012 after a record harvest of 13.925 billion bushels last year in the U.S., the world's top grower. The commercial hog slaughter declined 0.9 percent last year to 112.13 million hogs, USDA data show.

Hog carcasses at pork plants on Jan. 31 weighed 216.67 pounds (98.3 kilograms) on average, up 0.7 percent for the month, the fifth straight increase, U.S. Department of Agriculture data show. Carcasses were 3.6 percent heavier than a year earlier, which should help keep U.S. pork output stable this year compared with 2013, according to Steve Meyer, the president of Paragon Economics in Adel, Iowa.

Survival rates still haven't recovered for the herds owned by Rowles, who as a 14-year-old high school student started selling pigs that he raised in his father's barn to pay college tuition. Today, he has 8,000 breeding sows that produce 12 or 13 piglets per litter on average 2.5 times a year, and he sells about 150,000 pigs a year.

When the outbreak struck the first of his three breeding units, Rowles said he lost 93 percent of newborn piglets over the first three weeks. During that period, only 250 animals survived at the unit, which usually produces 1,100 a week. The mortality rate slid to 50 percent over the next two weeks, and 10 percent to 20 percent after that. All three units were affected. While still 90 percent of normal, two breeding units are back to producing close to 1,000 piglets a week, he said.

“I wouldn't be surprised to see losses in 4 million to 5 million-pig range” from U.S. production in the 12 months ending in June, said Brett Stuart, a former economist at the U.S. Meat Export Federation who is now chief executive officer of Denver- based Global AgriTrends. “We just don't know how this virus ends. It may be worse a year from now. It could be done. We just don't know.”

Paragon's Meyer said the loss may be 4.5 million pigs, based on estimates that 1.8 million sows are affected and anecdotal evidence suggesting each one is losing about 2.5 piglets. Some are losing more, he said.

Hedge funds and other large speculators increased their bullish bets on hog prices last week by 11 percent, the biggest increase since September. Net-long positions reached 45,930 futures and options contracts as of Jan. 28, the second straight increase after 16 weeks of declines, U.S. Commodity Futures Trading Commission data show.

There are about 2,692 confirmed PED cases as of Jan. 19, according to a report prepared by the National Animal Health Laboratories Network and posted on the American Association of Swine Veterinarians' website. There were more than 1,000 new cases since Dec. 1, and 215 were reported during the week ending Jan. 19, the largest number in a single week since the start of the outbreak, the data show.

While the virus has been detected in 23 states, from California to Minnesota to North Carolina, the most confirmed cases have been in Iowa, according to the data. Researchers at Iowa State said Jan. 30 they may have discovered a new genetic sequence of the virus in the U.S.

Last month, PED was found in Canada, including eight cases in the province of Ontario.

Canada's hog industry would suffer “disastrous economic losses” if PED spreads because the nation's herd has no immunity, according to the Canadian Swine Health Board's website. The virus may have “a very serious economic impact” on Canada's pork industry, said Richard Vigneault, a spokesman for St-Hyacinthe, Quebec-based Olymel S.E.C., which reported a positive test Jan. 21 at its processing facility in Saint- Esprit, Quebec.

Transportation of hogs by trailer and truck helped spread the virus over long distances, according to Greg Douglas, the chief veterinarian for Ontario. The virus survives better in winter and it is a challenge to keep it from entering barns, he said. Unusually cold weather over the past month helped PED spread, fueling a hog-price rally, Farha Aslam, an analyst for Stephens Inc. in New York, said in a report on Jan. 28.

“We don't know how much this disease will spread and cut hog supplies this year,” Mark Schultz, the chief analyst at Northstar Commodity Investment in Minneapolis, said in a telephone interview. “Cold weather is making the spread of the disease even worse, and it looks like cold, snowy weather will continue through February.”

On any given day, about 600,000 pigs move around the U.S. from one location to another, according to Lisa Becton, director of swine health information at the National Pork Board, an industry group in Des Moines, Iowa. With sub-zero weather, keeping trucks clean is more difficult because the water used to wash away waste freezes, she said.

“There's no quick fix to cleaning this up,” said Harold Lee, who owns a 2,500-sow farm in Hawarden, Iowa. Lee said he lost 1,300 piglets in the first week of an outbreak that began on Dec. 19 and then 3,000 more a week later. “It's like no other disease,” he said. “There's nothing you can do to save a pig that's less than five days old. We won't know all the damage until all the affected sows come back to farrow.”